The radical overhaul of youth custody would involve offenders serving their sentences in "secure schools" instead of young offender institutions (YOIs).
The plan is based on recommendations from a review of youth justice, ordered by the government last year, and carried out by Charlie Taylor, the former chief executive of the National College for Teaching and Leadership (NCTL).
The findings from Mr Taylor, a former headteacher who left the NCTL in August last year, suggest that the system would be more effective in rehabilitating young people if education was placed at its heart.
There are currently five YOIs and three secure training centres for young people in England and Wales.
Under the proposals, these would be replaced by secure schools that would help children to master the basics in English and maths and provide high-quality vocational education "in a more therapeutic environment".
Young people would stay at them full-time for the duration of their sentence.
The measure is one of a number being considered by the government to drive down reoffending rates.
The review finds that the number of children in custody has fallen by almost two-thirds in the past decade, reaching the lowest recorded level.
In 2014-15 the population stood at 1,048 and is currently below 1,000 – but two in three children commit a new offence within a year of being released.
Mr Taylor's report also finds that about 40 per cent of those detained in YOIs have not been to school since they were aged 14, while nearly nine out of 10 have been excluded from school at some point.
Children in YOIs are only receiving 17 hours of education every week, compared with an expected level of 30 hours.
Mr Taylor is expected to recommend giving local areas a greater say in the way children are managed by devolving responsibility, control and money from Whitehall.
He said: "Since beginning this review, I have been hugely impressed by the expertise and dedication of so many people who work with some of the most difficult and troubled children in the country.
"I am, however, convinced the youth custodial estate must be reformed to give children the support and education they need to become successful adults.
"Education is important for all children, but for those involved in offending it is vital. We need a resolute focus on giving children in trouble with the law the skills, qualifications and aptitudes to lead successful, law-abiding lives."
Prime Minister David Cameron confirmed the government will explore using processes for establishing free schools to set up secure academies for young offenders.
He said: "In short, this will mean turning existing young offender institutions (YOIs) into what will effectively be high-quality schools that will demand the highest standards."
Justice secretary Michael Gove said: "I am in no doubt that our system of youth justice needs reform."
The former education secretary added: "Although youth offending is down, recidivism rates are high, and the care and supervision of young offenders in custody is not good enough."